How come when borrowing money using the equity in my property to invest in shares the interest rate is different to that of my home loan?
Hi Wayne. Lenders are required to put more capital away when they write an investment loan compared to a home loan. They get less income on that capital so they charge a higher rate to the investor.
Having said that some lenders do not charge a higher rate.
You have simply to look at the profit figures for our big banks to understand the real reason for the higher rates.
Shop around or get a broker to do it for you.
Hi Wayne, this is not always the case as it depends on the lender. APRA regulated lenders underwent a lot of changes last year, which resulted in tiered pricing as they need to hold more capital. Essentially they put up prices to make more money.
Assuming this is your owner occupied property:
Because you have told the bank that you are topping up your home loan for the purpose of investing in shares.
That portion of funds you have drawn out will now fall under "investment" and be charged at an investment interest rate.
When submitting an application for finance you'll need to state the purpose of the funds. This can either be for investment or own purposes (like renovations). In the current market investment rates tend to be slightly higher than those for owner occupied purposes. This varies from lender to lender though so worth looking around. Hope this helps.
It's considered investment which is always a higher rate than home loan rates. This can be fixed by refinancing.
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